Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
(Incorporated in Bermuda with limited liability) (Stock Code: 1003)
FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
The board of directors (the “Board”) of Huanxi Media Group Limited (the “Company”) announces the consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31 December 2019, together with comparative figures for the year ended 31 December 2018, as follows:
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December 2019
2019 2018 NOTE HK$’000 HK$’000
Revenue and film investment income 5 814,425 174,632 Cost of revenue 11 (470,915) (85,317)
Gross profit 343,510 89,315 Other income 7 21,371 42 Other losses 8 (2,306) (346) Selling and distribution costs 11 (43,274) (25,958) Administrative expenses 11 (132,983) (203,521) Share-based payment for cooperation with a film director 22 – (270,000)
Operating profit/(loss) 186,318 (410,468)
* For identification purposes only 1 2019 2018 NOTE HK$’000 HK$’000
Finance income 9 3,036 701 Finance costs 9 (3,170) (16,497)
Finance costs, net 9 (134) (15,796)
Profit/(loss) before tax 186,184 (426,264) Income tax expense 10 (81,081) (18,429)
Profit/(loss) for the year 105,103 (444,693)
Profit/(loss) for the year attributable to owners of the Company 105,103 (444,693)
Other comprehensive (loss)/income Item that will not be reclassified to profit or loss: Exchange differences arising on translation of functional currency to presentation currency (7,195) 5,028
Item that may be reclassified to profit or loss: Exchange differences on translation of foreign operations (22,776) (49,202)
(29,971) (44,174)
Total comprehensive income/(loss) for the year 75,132 (488,867)
Total comprehensive income/(loss) for the year attributable to owners of the Company 75,132 (488,867)
Earnings/(loss) per share for profit/(loss) attributable to owners of the Company Basic and diluted (HK dollar) 13 0.03 (0.16)
2 CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 December 2019 2019 2018 NOTE HK$’000 HK$’000 NON-CURRENT ASSETS Property, plant and equipment 4,571 3,762 Right-of-use assets 36,097 – Intangible assets 11,294 16,285 Deposits and prepayments 16 105,198 5,608 Prepayments for film and TV programmes rights 14 362,707 370,222 Film and TV programmes rights 15 118,438 18,077
638,305 413,954
CURRENT ASSETS Film and TV programmes rights 15 803,514 744,542 Trade and other receivables, deposits and prepayments 16 155,120 371,305 Contract assets 17 2,364 5,220 Cash and cash equivalents 256,203 158,528
1,217,201 1,279,595
Total assets 1,855,506 1,693,549
EQUITY Share capital 31,547 29,181 Reserves 1,098,683 629,487
Total equity 1,130,230 658,668
NON-CURRENT LIABILITY Lease liabilities 20,997 –
CURRENT LIABILITIES Trade and other payables 18 93,860 98,025 Film investment funds from investors 19 188,634 – Contract liabilities 17 279,250 528,652 Amounts due to related parties 20 – 92,467 Borrowings 21 50,000 295,307 Lease liabilities 15,897 – Tax payable 76,638 20,430
704,279 1,034,881
Total liabilities 725,276 1,034,881
Total equity and liabilities 1,855,506 1,693,549
3 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2019
1. GENERAL The Company was incorporated in Bermuda as an exempted company with limited liability and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).
The Company is an investment holding and film investment company and its subsidiaries are principally engaged in the media and entertainment related businesses which include development and investment in film and TV programmes rights and operation of streaming platform.
These consolidated financial statements of the Company and its subsidiaries are presented in Hong Kong dollars (“HK$”), unless otherwise stated.
2. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS (a) Compliance with HKFRSs and HKCO The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) and requirements of the Hong Kong Companies Ordinance (“HKCO”) Cap. 622.
(b) Historical cost convention The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities measured at fair value.
(c) New and amended standards adopted by the Group The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2019:
Annual Improvement projects Annual improvements 2015 – 2017 Cycle (Amendments) HKAS 19 (Amendments) Plan amendment, curtailment or settlement HKAS 28 (Amendments) Long-term interests in associates and joint ventures HKFRS 9 (Amendments) Prepayment features with negative compensation HKFRS 16 Leases HK(IFRIC)-Int 23 Uncertainty over income tax treatments
The Group had to change its accounting policies but no retrospective adjustments were resulted following the adopting HKFRS 16. The impact of adoption is disclosed in Note 3. Most of the other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current period.
4 (d) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
Effective for annual periods beginning on or after
HKAS 1 and HKAS 8 Definition of material 1 January 2020 (Amendments) HKFRS 3 (Amendments) Definition of business 1 January 2020 Conceptual Framework for Revised conceptual framework 1 January 2020 Financial Reporting 2018 for financial reporting HKFRS 17 Insurance contracts 1 January 2021 HKFRS 10 and HKAS 28 Sale or contribution of assets To be announced (Amendments) between an investor and its associate or joint venture
3. CHANGES IN ACCOUNTING POLICIES This note explains the impact of the adoption of HKFRS 16 Leases on the Group’s consolidated financial statements.
As indicated in Note 2 above, the Group has adopted HKFRS 16 Leases retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening statement of financial position on 1 January 2019.
On adoption of HKFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of HKAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 3.82%.
(a) Practical expedients applied In applying HKFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
• applying a single discount rate to a portfolio of leases with reasonably similar characteristics
• relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review – there were no onerous contracts as at 1 January 2019
5 • accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases
• excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
• using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying HKAS 17 and Interpretation 4 Determining Whether an Arrangement Contains a Lease.
(b) Measurement of lease liabilities HK$’000
Operating lease commitments disclosed as at 31 December 2018 35,577 Discounted using the lessee’s incremental borrowing rate of at the date of initial application (2,134) Short-term leases not recognised as a liability (3,540)
Lease liabilities recognised as at 1 January 2019 29,903
Of which are: – Current lease liabilities 8,899 – Non-current lease liabilities 21,004
29,903
(c) Measurement of right-of-use assets The associated right-of-use assets were measured at the amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the consolidated statement of financial position as at 31 December 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
(d) Adjustments recognised in the consolidated statement of financial position on 1 January 2019 The change in accounting policy affected the following items in the consolidated statement of financial position on 1 January 2019:
• right-of-use assets – increase by approximately HK$29,903,000; and
• lease liabilities – increase by approximately HK$29,903,000
6 4. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the HKCO.
5. REVENUE AND FILM INVESTMENT INCOME An analysis of the Group’s revenue and film investment income for the year, net of sales related tax, is as follows:
2019 2018 HK$’000 HK$’000
Revenue – Share of box office income 787,256 12,761 – Sub-licensing of film and TV programmes rights 11,858 22,978 – Other media related revenue 7,842 634 – Others – 286
806,956 36,659 Film investment income 7,469 137,973
814,425 174,632
6. SEGMENT INFORMATION The Chief Operating Decision Maker (“CODM”) has been identified as the executive directors who review the Group’s internal reporting in order to assess performance and allocate resources. The CODM has determined the operating segments based on these reports.
The CODM assesses the performance based on a measure of profit/(loss) before income tax and considers all businesses to be included in a single operating segment.
The Group’s operations are currently organised into one reportable segment which is investment in film and TV programmes rights. Other segments do not meet the reportable segment threshold and thus they are not separately included in the reports provided to the CODM. The results of these operations are included in the ‘others’ column.
7 The following is an analysis of the Group’s revenue and results by operating and reportable segments:
Investments in film and TV programmes rights Others Consolidated 2019 2018 2019 2018 2019 2018 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Segment revenue Revenue – Share of box office income 787,256 12,761 – – 787,256 12,761 – Sub-licensing of film and TV programmes rights 11,858 22,978 – – 11,858 22,978 – Other media related revenue 7,842 634 – – 7,842 634 – Others – – – 286 – 286 Film investment income 7,469 137,973 – – 7,469 137,973
814,425 174,346 – 286 814,425 174,632
Timing of revenue recognition At a point in time 806,956 36,373 – 286 806,956 36,659
Segment profit/(loss) 279,417 (244,921) (4) (521) 279,413 (245,442)
Unallocated corporate expenses (93,095) (165,026) Finance costs, net (134) (15,796)
Profit/(loss) before tax 186,184 (426,264) Income tax expense (81,081) (18,429)
Profit/(loss) for the year 105,103 (444,693)
Other information (included in measure of segment profit/(loss)) Share-based payment for cooperation with a film director – (270,000) – – Other income 21,371 32 – 10 Depreciation of property, plant and equipment (1,120) (1,164) (1) (1) Depreciation of right-of-use assets (4,639) – – – Amortisation of intangible assets (4,837) (5,027) – – Amortisation of film and TV programmes rights (466,342) (80,477) – – Loss on disposal of property, plant and equipment – (29) – –
8 All of the segment revenue reported above was derived from external customers.
The accounting policies of the operating segments are the same as the Group’s accounting policies. Segment profit/(loss) represents the profit/(loss) from each segment without allocation of unallocated corporate expenses (which mainly include certain administrative expenses and net foreign exchange losses) and finance costs. This is the measure reported to the CODM for the purposes of resource allocation and performance assessment.
7. OTHER INCOME 2019 2018 HK$’000 HK$’000
Government grant (Note) 21,371 – Sundry income – 42
21,371 42
Note: During the year, a government grant of approximately RMB18,464,000 (equivalent to approximately HK$21,371,000) was received from the People’s Republic of China (the “PRC”) government. There are no unfulfilled conditions or other contingencies attaching to this grant.
8. OTHER LOSSES 2019 2018 HK$’000 HK$’000
Net foreign exchange losses (2,311) (505) Gain/(loss) on disposal of property, plant and equipment 5 (29) Gain from bargain purchase – 188
(2,306) (346)
9 9. FINANCE COSTS, NET 2019 2018 HK$’000 HK$’000
Finance income Bank interest income 3,036 701
Finance costs Interest on borrowings (2,339) (6,612) Net foreign exchange gains/(losses) on foreign currency denominated borrowings 761 (9,885) Financial charges for lease liabilities (1,592) –
(3,170) (16,497)
Finance costs, net (134) (15,796)
10. INCOME TAX EXPENSE Under the Law of the PRC on Corporate Income Tax (the “CIT Law”) and Implementation Regulation of the CIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onwards.
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years. No provision for Hong Kong Profits Tax has been made in the consolidated financial statements as the relevant group entities have sufficient tax losses brought forward from prior years to set off the assessable profit for the year (2018: as the relevant group entities have incurred tax losses). No overseas profits tax has been calculated for subsidiaries of the Group that are incorporated in the British Virgin Islands or Bermuda as they are exempted from tax (2018: same).
Income tax expense charged to the profit or loss represents:
2019 2018 HK$’000 HK$’000
Current tax 81,145 18,429 Over-provision in prior year (64) –
81,081 18,429
10 11. EXPENSES BY NATURE 2019 2018 HK$’000 HK$’000
Employee benefit expenses (excluding directors’ remuneration and share-based compensation) 46,110 38,045 Directors’ remuneration (excluding share-based compensation) 25,199 21,056 Share-based compensation – Directors – 28,129 – Employees 6,430 57,239 Depreciation – Property, plant and equipment 2,244 2,361 – Right-of-use assets 14,091 – Legal and professional expenses 8,615 12,692 Travelling and entertainment expenses 9,351 10,476 Advertising and marketing expenses 43,274 25,245 Amortisation of intangible assets 4,837 5,027 Amortisation of film and TV programmes rights 466,342 80,477 Operating lease payments in respect of office premises and photocopying machines – 15,481 Short-term lease expense 2,754 – Auditors’ remuneration – Audit services 3,150 2,670 – Non-audit services 365 30 Other expenses 14,410 15,868
Total cost of revenue, selling and distribution costs and administrative expenses 647,172 314,796
12. DIVIDENDS Neither dividends were paid, declared or proposed for the year, nor has any dividend been proposed since the end of reporting period (2018: same).
11 13. EARNINGS/(LOSS) PER SHARE (a) Basic Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares by the weighted average number of ordinary shares outstanding during the financial year.
2019 2018
Profit/(loss) attributable to owners of the Company (in HK$’000) 105,103 (444,693) Weighted average number of ordinary shares for the purpose of basic and diluted earnings/(loss) per share (in thousands) 3,104,743 2,812,850 Basic earnings/(loss) per share (HK$ per share) 0.03 (0.16)
(b) Diluted Diluted earnings/(loss) per share is the same as basic earnings/(loss) per share as there were no potential dilutive ordinary shares outstanding during the year (2018: same).
14. PREPAYMENTS FOR FILM AND TV PROGRAMMES RIGHTS 2019 2018 HK$’000 HK$’000
Prepayments for film and TV programmes rights (Note) 350,976 358,248 Prepayment for film director’s fee 11,731 11,974
362,707 370,222
Note: The prepayments for film and TV programmes rights represented the prepayments made by the Group to respective parties in relation to the film and TV programmes rights. The prepayments will form part of the contribution by the Group for the investments in the proposed film and TV programmes rights. The related terms will be further agreed between the respective parties upon the signing of the agreements.
12 15. FILM AND TV PROGRAMMES RIGHTS 2019 2018 HK$’000 HK$’000
Film and TV programmes rights completed (Note a) 542,788 10,246 Film and TV programmes rights under production (Note a) 259,633 734,296 Film rights investments (Note b) 99,897 – Licensed film and TV programmes rights (Note c) 19,634 18,077
921,952 762,619
Less: Current portion (803,514) (744,542)
118,438 18,077
Notes:
(a) As at 31 December 2019, the film and TV programmes rights completed included a film right of approximately HK$349,907,000 in respect of a film Lost in Russia (囧媽). On 26 February 2019, the Group entered into i) a film production agreement with Beijing Joy Leader Culture Communication Co. Ltd. (北京真樂道文化傳播有限公司) (“Beijing Joy Leader”), a company which is owned as to 51% by Mr. Xu Zheng (“Mr. Xu”), the non-executive director of the Company, as the production house of the aforementioned film at a consideration of RMB30,000,000 and ii) a film director agreement, a producer agreement, a screenwriter agreement and an actor agreement with Mr. Xu, the non-executive director of the Company, at a consideration of RMB27,000,000, RMB10,000,000, RMB10,000,000 and RMB40,000,000 respectively. Such costs have been capitalised as the film and TV programmes rights.
As at 31 December 2018, the film and TV programmes rights under production included a film right of approximately HK$428,074,000 in respect of a film Crazy Alien (瘋狂的外星 人), which has been released in 2019.
(b) The balance represented the Group’s investments in film productions which entitled the Group to predetermined percentage of income to be generated from the films based on the Group’s investment portion as specified in respective film right investment agreements.
(c) The balance represented the Group’s investments in film and TV programmes right licenses. The Group acquired license rights from independent third parties for broadcasting licensed films or TV programmes series on its streaming platform or sub-licensing the license rights to other independent third parties.
13 16. TRADE AND OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS 2019 2018 HK$’000 HK$’000
Trade receivables – Sub-licensing of film and TV programmes rights 2,816 2,946 – Film rights investments 106,316 136,225 – Others 349 349
109,481 139,520 Loss allowance (257) (257)
109,224 139,263
Deposits 6,287 6,219 Prepayments 124,874 1,575 Other receivables 19,933 229,856
260,318 376,913 Less: Amounts due within one year shown under current assets (155,120) (371,305)
Non-current portion 105,198 5,608
The credit period is generally within 30 days as stipulated in the respective agreements.
At 31 December, the ageing analysis of the trade receivables, net of loss allowance, presented based on invoice date or date of settlement statement are as follows:
2019 2018 HK$’000 HK$’000
0 – 30 days 3,976 139,170 91 – 180 days – 93 181 – 365 days 11,364 – Over 365 days 93,884 –
109,224 139,263
14 17. CONTRACT ASSETS AND LIABILITIES The Group has recognised the following assets and liabilities related to contracts with customers:
2019 2018 HK$’000 HK$’000
Current contract assets 2,364 5,220 Loss allowance – –
Total contract assets 2,364 5,220
Contract liabilities 279,250 528,652
As at 31 December 2019, contract assets represented unbilled revenue arisen from the sub-licensing of film and TV programmes rights in accordance with the payment terms as stipulated in the respective contracts (2018: same).
As at 31 December 2019, contract liabilities mainly represented the receipt of RMB250,000,000 (2018: RMB464,000,000), equivalent to approximately HK$278,831,000 (2018: HK$528,233,000), in respect of a guaranteed minimum distribution income totalling RMB600,000,000 (2018: RMB700,000,000) from distribution of a film. This contract liability has been released and repaid subsequent to year end (2018: recognised as revenue subsequent to year end) (please refer to Note 24(a)). The amount disclosed above does not include variable consideration which is constrained.
18. TRADE AND OTHER PAYABLES 2019 2018 HK$’000 HK$’000
Trade payables 67,851 64,377 Other payables 10,314 15,208 Accruals 15,695 18,440
93,860 98,025
The carrying amounts of trade and other payables approximated their fair values.
At 31 December, the ageing analysis of the trade payables based on invoice date are as follows:
2019 2018 HK$’000 HK$’000
0 – 30 days 23,483 28,111 91 – 180 days – 17,685 181 – 365 days 3,246 5,630 Over 365 days 41,122 12,951
67,851 64,377
15 19. FILM INVESTMENT FUNDS FROM INVESTORS The amounts represent investments made by certain investors in respect of film rights held by the Group. In accordance with the terms of the respective investment agreements, the investors are entitled to the rights to recoup their investment amounts as appropriate by the predetermined percentage of income to be generated from the films. These financial liabilities were carried at amortised cost.
20. RELATED PARTY DISCLOSURES 2019 2018 HK$’000 HK$’000
Amount due to a shareholder – Mr. Dong Ping (Note i) – 1,393
Amounts due to related companies – Beijing Dirty Monkey Cultural Development Company Limited* (Note ii) – 45,537 – Khorgas Dirty Monkey Media Culture Company Limited* (Note ii) – 45,537
– 92,467
Trade payables – Mr. Xu (Note iii) 2,063 – – Beijing Joy Leader Culture Communication Co. Ltd.* (Note iii) 3,346 –
5,409 –
Trade receivable – Khorgas Dirty Monkey Media Culture Company Limited* (Note iv) 76,754 –
Prepayment for film and TV programmes rights – Mr. Xu (Note v) 11,731 11,974
16 Note i: The balance was denominated in HK$, non-trade in nature, unsecured, interest-free and repayable on demand.
Note ii: The balances were denominated in RMB, non-trade in nature, unsecured, interest-free and repayable within one year.
Note iii: The balances are denominated in RMB, trade in nature, unsecured, interest-free and repayable within one year.
Note iv: The balance is denominated in RMB, trade in nature, unsecured, interest-free and receivable within one year.
Note v: The balance represents the payment prepaid to Mr. Xu in relation to the development of the proposed film.
The carrying amounts of amount due to a shareholder and amounts due to related companies approximate their fair values.
* The English name is for identification purpose only
21. BORROWINGS 2019 2018 HK$’000 HK$’000
Other borrowings Secured – 220,364 Unsecured 50,000 74,943
Total borrowings 50,000 295,307
As at 31 December 2019, the borrowing was interest-free and repayable within one year.
As at 31 December 2018, all borrowings were interest-bearing ranged from 0% to 12% per annum and repayable within one year. The secured borrowings were secured by other receivables accounting to approximately HK$223,133,000.
The fair values of the borrowings are not materially different to their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature.
17 22. SHARE-BASED PAYMENTS 2019 2018 HK$’000 HK$’000
Share-based payment for cooperation with a film director – 270,000
Share-based compensation – Directors – 28,129 – Employees 6,430 57,239
6,430 355,368
23. LITIGATIONS (i) A court action was commenced in the Chengdu Intermediate People’s Court on 29 April 2018 by Chengdu Watson Media Co., Ltd. (the “Chengdu Plaintiff”), an independent third party, against Beijing Huanxi Shou Ying Culture Company Limited (“Shou Ying”), an indirect wholly-owned company through contractual arrangements, and other 17 investors of the film Us and Them (後來的我們) (the “18 Defendants”).
By the above action, the Chengdu Plaintiff alleged that the 18 Defendants through unfair competition adversely affected the box office receipts of the Chengdu Plaintiff’s film during the release period of the film Us and Them (後來的我們). The Chengdu Plaintiff mainly requested the 18 Defendants to compensate a total sum of RMB10,000,000 and bear the relevant legal fee and reasonable expenses arising from their legal rights protection.
Subsequent to the year end, the court action was withdrawn by the Chengdu Plaintiff. The Group was not liable to any compensation.
(ii) A court action was commenced in the Wuhan Intermediate People’s Court on 29 November 2018 by Wuhan Guangya Culture and Art Development Co., Ltd. and Huang Gansheng (the “Wuhan Plaintiff”), independent third parties, against 17 investors of the film Us and Them (後來的我們), including Shou Ying (the “17 Defendants”).
By the above lawsuit, the Wuhan Plaintiff alleged that the 17 Defendants infringe of the right of adapt and film the script of the film Us and Them (後來的我們) and damage the interests of market through filming Us and Them (後來的我們). The Wuhan Plaintiff mainly requested the 17 Defendants to stop the reproduction, distribution and dissemination of the film, compensate a total sum of RMB70,000,000 and bear the case acceptance fee and other legal fees.
During the year, the lawsuit was settled and the Group was not liable to any compensation.
18 24. EVENTS AFTER THE REPORTING PERIOD Following the outbreak of Coronavirus Disease 2019 (“the COVID-19 outbreak”) since January 2020, management has conducted an assessment of the impact of the COVID-19 outbreak to the financial performance of the Group and has identified the following:
(a) The distributor of Lost in Russia (囧媽) has withdrawn the theatrical release on 23 January 2020. The Group decided to terminate the minimum guaranteed distribution agreement in accordance with its terms and conditions as the film has not been premiered on the first day of Chinese New Year in 2020 as agreed therein. The Group has repaid the receipt in respect of minimum guaranteed distribution amounted to RMB250,000,000 (equivalent to approximately HK$278,831,000) in February 2020 (please refer to Note 17).
(b) On 23 January 2020, the Group has entered into a cooperation agreement with Beijing ByteDance Network Technology Limited*(北京字節跳動網絡技術有限公司)(“ByteDance”), pursuant to which, the Group and ByteDance will cooperate in several fields in relation to online videos and ByteDance shall pay the Group at least RMB630,000,000 as consideration. As part of the cooperation, following the withdrawal of theatrical release of Lost in Russia (囧媽), the Group has licensed this film to ByteDance and its related parties for the release through online platforms since 25 January 2020.
(c) On 31 March 2020, the Group has entered into an agreement to terminate a film investment agreement with an investor. Pursuant to the agreement, the prepaid amount of RMB150,000,000 (equivalent to approximately HK$167,299,000), which has been recognised as financial lability as of 31 December 2019, will be fully repaid to the counterparty.
(d) The COVID-19 outbreak may also impact the production and distribution plan of the Group’s film and TV programmes rights. If the COVID-19 outbreak persists for a longer period subsequently, the financial performance of the Group for the year ending 31 December 2020 may be affected but the financial effect of which cannot be reasonably estimated at this stage.
The Group will pay close attention to the development of the COVID-19 outbreak and its impact on the media market, and will continue to perform relevant assessments and take proactive measures to minimise its impact towards the Group’s business operations and financial results.
* For identification purposes only
19 MANAGEMENT DISCUSSION AND ANALYSIS Business and Operation Review In 2019, Crazy Alien (瘋狂的外星人) and My People, My Country (我和我的祖國), which were invested in and produced by the Group, hit cinema screens during the Chinese New Year holiday and the National Day holiday respectively. The two films received satisfactory critical acclaim and generated good box office receipts. Meanwhile, the Group produced a number of excellent film and TV productions, planning to present them to audiences in the year ahead, paving the way for the steady development of the Group’s film and TV business. In addition, the Group commenced several strategic cooperation initiatives with its partners, such as Beijing ByteDance Network Technology Limited* (北京字節跳動網絡技術有限公司) (“ByteDance”) and Maoyan Entertainment, thereby leading to the pooling of complementary strengths and resources-sharing outcomes and facilitating rapid development of the Group’s streaming platform “huanxi.com” (歡喜首映).
Investments in Film and TV Programmes Rights Business For the year ended 31 December 2019, revenue from the investments in film and TV programmes rights business amounted to HK$814,425,000 (2018: HK$174,346,000), mainly attributable to Crazy Alien (瘋狂的外星人), which was solely invested by the Group and directed by Ning Hao. The film debuted during the Chinese New Year holiday in 2019, with box office receipts exceeding RMB400 million on its debut and total box office receipts reaching RMB2.2 billion and My People, My Country (我和我 的祖國), a film co-produced by the Group and paying tribute to the nation, with its box office receipts reaching RMB3.2 billion. In addition, the revenue derived from the Group’s streaming platform “huanxi.com” also increased. All these initiatives contributed significant revenue to the Group during the year. This segment profit rose notably to HK$279,417,000 from last year (2018: segment loss of HK$244,921,000).
As for the film investments, during the year, the Group signed a minimum guaranteed distribution agreement in relation to the film Lost in Russia (囧媽), which was written and directed by and starring Xu Zheng and was originally scheduled to be released in the cinemas during the Chinese New Year holiday in 2020. However, affected by the outbreak of Coronavirus Disease 2019 (“COVID-19”), Lost in Russia (囧媽) was unable to hit the screens in accordance with the terms of the signed minimum guaranteed distribution agreement. Hence, the Group changed its strategy to cooperate with ByteDance and to broadcast Lost in Russia (囧媽) on internet platforms during the Chinese New Year holiday. Through this move, the Group received the license fees paid by ByteDance and shared the income related to this broadcast, gaining considerable acclaims while attracting users of streaming platform for the Group.
* For identification purposes only
20 During the year, the Group continued to invest and produce several major film productions, including Leap (奪冠) (previously known as Leap (中國女排)) and Li Na (獨 自•上場) (previously known as Li Na (李娜)), both directed by Chan Ho Sun Peter; Miss Mom (尋漢計) (previously known as Miss Mom (生不由己)), directed by Tang Danian and starring Ren Suxi; Tropical Memories (熱帶往事), produced by Ning Hao and directed by the young director Wen Shipei; Leaping Over The Dragon Gate (龍門相) (previously known as The Advanced Animals (高級動物)), produced by Gao Qunshu; Warm Hug (温暖的抱抱), directed by Chang Yuan and starring Chang Yuan, Shen Teng and Li Qin; The Mountain (上山), produced by Wang Xiaoshuai; and One Second (一秒 鐘), directed by Zhang Yimou. These movies have entered the post-production or completion stages, and are expected to be released in 2020.
As for the internet drama investments, Run For Young (風犬少年的天空), a 16-episode internet drama series directed by Zhang Yibai, has entered the post-production stage and is expected to be released in 2020. Paradise Guesthouse (天堂旅館), a 12-episode internet drama series produced and co-directed by Wong Kar Wai, is preparing its pre-production.
As for the streaming platform, the Group has signed a strategic cooperation agreement with Tianjin Maoyan Weying Cultural Media Co., Ltd.* (“Maoyan Weying”) during the year. Maoyan Weying carries out marketing and promotion of “huanxi.com” on its website and APP and plans for joint investment projects including films, TV drama series and internet drama series. Besides, the Group also collaborated with 1905.com of CCTV6, a film satellite channel under the Publicity Department of the Central Committee of the Communist Party of China, to establish a joint operation zone for “huanxi.com” on the website, mobile phone and PAD customer terminals of 1905.com. Together with the linking of BesTV terminal and “huanxi.com” via cooperation with BesTV, the Group’s channel coverage has been maximised to provide selected content services for audiences.
After the year under review, in January 2020, the Group signed a cooperation agreement with ByteDance, a leading internet company in China, pursuant to which, the parties shall carry out strategic cooperation in various fields related to online videos, and ByteDance shall pay the Group a minimum of RMB630,000,000 as consideration. The cooperation will be carried out in two phases:
The term of first-phase cooperation shall be six months, mainly involving (i) the Group’s certain new films and internet drama series will be broadcast simultaneously on “huanxi.com” and popular online platforms of ByteDance, such as “Toutiao” (今日頭條) and “Xigua” (西瓜視頻); (ii) ByteDance shall set dedicated gateways and zones on platforms such as “Toutiao” and “Xigua” for directing traffic to “huanxi.com”; (iii) platforms including “Toutiao” and “Xigua” shall support the promotion and marketing of the Group’s film and TV projects; (iv) the Group shall provide ByteDance with resources for advertising placement, joint marketing and cross-industry cooperation; and (v) provide ByteDance with the rights of authorship as co-producer(s) for films of which the Group is the lead producer.
* For identification purposes only
21 It is expected that the second phase will be commenced subsequent to the first phase. The parties shall make joint capital contributions to purchase new media rights of film and TV contents, jointly establish a cinema channel, in a collective effort to build the “huanxi.com” streaming media platform, as well as to build a leading long video platform in China, which is expected to inject new impetus to the development of the streaming platform of the Group.
Currently, “huanxi.com” (歡喜首映), being the Group’s streaming platform, has accumulated over two million (2,000,000) fee-paying subscribers, while downloads for the mobile application of “huanxi.com” went over eleven million (11,000,000) in total. In the future, the Group will continue to optimise and update the contents of the platform and bring more extensive user groups to “huanxi.com” through forming partnerships, with the aim of stepping up efforts to facilitate the operation and expansion of its streaming platform.
Other Businesses The Group’s other businesses include property agency business and securities trading and investments business. For the year ended 31 December 2019, the Group’s other businesses did not record any revenue (2018: HK$286,000) and recorded segmental loss of HK$4,000 (2018: HK$521,000). The property agency business and securities trading and investments business have remained inactive during the year.
FINANCIAL REVIEW Review of Results For the year ended 31 December 2019, the Group recorded revenue and film investment income of HK$814,425,000 (2018: HK$174,632,000), representing 3.7 times increase in revenue and film investment income compared with corresponding period of last year. The gross profit was HK$343,510,000 (2018: HK$89,315,000), representing a sharp increase in gross profit compared with corresponding period of last year. The profit attributable to owners of the Company of HK$105,103,000 (2018: loss of HK$444,693,000). The significant improvement of revenue, gross profit and profit attributable to owners of the Company were mainly caused by (i) the substantial increase in revenue from the Group’s principal business, namely investments in film and TV programmes rights, as well as the streaming platform “huanxi.com”; and (ii) the significant decrease in the recognition of share-based payments to HK$6,430,000 (2018: HK$355,368,000).
During the year, on 15 June 2019, the Group has entered into a film investment agreement (電影投資份額轉讓合同) with an investor, an independent third party, pursuant to which the investor is entitled to a film’s part of income rights for the box office in cinema circuits and cinemas in the PRC at a consideration of RMB210,000,000 (equivalent to approximately HK$243,056,000). After considering the film market condition and the Group’s film distribution plan, the Group recognised the film investment fund received from the investor of RMB150,000,000 (equivalent to approximately HK$167,299,000) as a financial liability as at 31 December 2019 and the aforementioned consideration of RMB210,000,000 was not recognised as a revenue for the year 2019. On 31 March 2020, the Group terminated the film investment agreement with the investor due to the fact that the film was unable to put on screens on the date agreed. 22 For the year ended 31 December 2019, earnings per share of the Group amounted to HK$0.03 (2018: loss per share of HK$0.16) and net asset value per share attributable to owners of the Company was HK$0.36 (2018: HK$0.23).
Liquidity and Financial Resources The Group’s capital expenditure, daily operations and investments are mainly funded by cash generated from its operations, equity fund raising and borrowings. As at 31 December 2019, the Group had net current assets of HK$512,922,000 (2018: HK$244,714,000), with cash and cash equivalents of HK$256,203,000 (2018: HK$158,528,000). As at 31 December 2019, the total equity of the Company amounted to HK$1,130,230,000 (2018: HK$658,668,000) with total borrowings of HK$50,000,000 (2018: HK$387,774,000). The Group’s gearing ratio, expressed as the percentage of total borrowings over total capital, was 0.04 (2018: 0.37) as at 31 December 2019. Total capital is calculated as total equity plus total borrowings.
Capital Structure As at 31 December 2019, the Company had 3,154,655,408 ordinary shares (2018: 2,918,055,408) of HK$0.01 each in issue (the “Share” or “Shares”).
During the year ended 31 December 2019, the movement in the issued Shares of the Company are as follows:
On 12 March 2019, the Company entered into the subscription agreement (“Subscription Agreement”) with Maoyan Entertainment, pursuant to which the Company has allotted and issued to Maoyan Entertainment 236,600,000 ordinary Shares (“Subscription Shares”) of aggregate nominal value of HK$2,366,000 at the subscription price of HK$1.6507 per Subscription Share (the “Subscription”). The net price received by the Company was approximately HK$1.6484 per Subscription Share. The closing price of the Shares on the date of entering into the Subscription Agreement was HK$1.560 per Share as quoted on the Stock Exchange.
Charges on Assets As at 31 December 2019, the Group did not have any charge of assets (2018: the Group’s secured borrowings of HK$220,364,000 were secured by other receivables amounting to approximately HK$223,133,000).
Foreign Exchange Exposure The Group’s cash flow from operations, cash on hand and assets are denominated mainly in Hong Kong dollars, US dollars and Renminbi. Although most of the production costs and management fees are denominated in Renminbi, foreign currencies are needed for many investment opportunities and cooperation plans with mainland China and overseas film companies. The Group will continue to monitor its capital needs closely and take appropriate measures to minimise any adverse impact of exchange rate fluctuation on its overall financial status and lower the Group’s financial risks.
23 Risk Management During the year under review, the Group regularly reviewed the risk and credit control systems of its profit centers to improve those systems overall and mitigate credit risk. There have been no significant changes in the Group’s risk management policy since the year-end date last year.
Contingent Liabilities As at 31 December 2019, save as disclosed in Note 23 “Litigations” to the consolidated financial statements, the Group had no significant contingent liabilities (2018: same).
Dividends The Directors do not recommend the payment of a final dividend for the year ended 31 December 2019 (2018: nil).
Employees and Remuneration Policies The Group firmly believes high-caliber people are the most valuable asset of a corporation. The Group thus places great attention on attracting and nurturing talent. It has kept optimising its staff structure to match its development strategy and business needs. As at 31 December 2019, the Group had 97 employees (2018: 84). It hired more employees during the year under review to support the expanding of its media and entertainment related businesses. The Group has in place well-designed remuneration management and incentive mechanisms, with employees remunerated based on their positions and work performance, along with industry trends.
Events After the Reporting Period On 23 January 2020, the Group signed a cooperation agreement with ByteDance to carry out cooperation in various fields related to online videos, and ByteDance shall pay the Group a minimum of RMB630,000,000 as consideration. The cooperation will be carried out in two phases:
The term of first-phase cooperation shall be six months, mainly involving (i) the Group’s certain new films and internet drama series will be broadcast simultaneously on “huanxi.com” and online platforms of ByteDance, such as “Toutiao” (今日頭條) and “Xigua” (西瓜視頻); (ii) ByteDance shall set dedicated gateways and zones on platforms such as “Toutiao” and “Xigua” for directing traffic to “huanxi.com”; (iii) platforms including “Toutiao” and “Xigua” shall support the promotion and marketing of the Group’s film and TV projects; (iv) the Group shall provide ByteDance with resources for advertising placement, joint marketing and cross-industry cooperation; and (v) provide ByteDance with the rights of authorship as co-producer(s) for films of which the Group is the lead producer.
24 It is expected that the second phase will be commenced subsequent to the first phase. The parties shall make joint capital contributions to purchase new media rights of film and TV contents, jointly establish a cinema channel, in a collective effort to build the “huanxi.com” streaming media platform.
Please refer to the Company’s announcement dated 23 January 2020 for details of the cooperation agreement between the Group and ByteDance.
Details regarding other events after the reporting period are set out in Note 24 “Events After the Reporting Period” to the consolidated financial statements.
Business Strategies and Prospects Looking into 2020, we believe that the film industry in China will continuously develop. Cultural-related consumption demand and the preferences of audiences will become more sophisticated, which will bring us to the harvest time for the development of the local film industry, when quality films and TV programmes will certainly stand out.
Despite the effects of COVID-19 outbreak on film industry at the beginning of 2020, the Group believes its negative influence will be short-lived. Film is a key part in the social culture, well-loved by audiences, and watching movies has become a popular leisure activity. As the epidemic recedes, we believe the reopened cinemas will benefit from strong spending from pent-up demand over a long period, which will contribute to the recovery of the entire film industry.
The Group firmly believes that content is critical to the success of the film and TV industry, while outstanding directors and creative teams are the key factors that determine the artistic merit and commercial value of films. The Group will continue to leverage its unique shareholding structure model and build up close cooperative relationship with world-known directors, and cooperate with top Chinese directors, including Ning Hao, Xu Zheng, Chan Ho Sun Peter, Wong Kar Wai, Zhang Yibai, Gu Changwei, Zhang Yimou, Jia Zhangke and Wang Xiaoshuai to ensure its access to original contents sources in China’s market of films and TV dramas. This, in turn, will secure for us a stable supply of quality film and TV productions, thereby satisfying the needs of an extensive audience, sparking cultural spending and further consolidating our leading presence in the film and TV industry of China.
At the same time, seeing the huge business opportunities and long-term prospects of streaming platforms, the Group will maintain in-depth cooperations with leading internet and entertainment companies including ByteDance and Maoyan Entertainment. This is aimed at providing more quality film and TV contents to “huanxi.com”, transforming it into a premium streaming platform with tremendous user traffic, thus injecting strong growth momentum into the Group.
25 Conclusion In conclusion, the Group will continue to prioritise investment in and production of quality original film and TV contents by extending its cooperation with top Chinese directors, while furthering that with potential acclaimed new directors. The Group will also continue to map out its dynamic development, seize the enormous opportunities in the Chinese market, and embrace the harvest time for ongoing industrialization of the Chinese film sector.
At the same time, the Group will continue to further its cooperation with leading companies in the Internet and Entertainment sector in China including ByteDance and Maoyan Entertainment, which aims to provide momentum for the Group’s streaming platform to capture opportunities brought by paid online viewing, so as to further strengthen and extend our competitive edge and continuously create promising returns to our shareholders.
OTHER INFORMATION Corporate Governance Practices Throughout the year ended 31 December 2019, the Company has applied the principles and complied with the code provisions set out in the Corporate Governance Code and Corporate Governance Report as listed out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange.
Purchase, Sale or Redemption of the Company’s Listed Securities During 2019, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.
Review of the Results The audit committee of the Company has reviewed with the management the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including the consolidated financial statements for the year ended 31 December 2019.
26 Scope of Work of PricewaterhouseCoopers The figures in respect of the Group’s consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position and the related notes thereto for the year ended 31 December 2019 as set out in the preliminary announcement have been agreed by the Group’s auditor, PricewaterhouseCoopers, to the amounts set out in the Group’s draft consolidated financial statements for the year. The work performed by PricewaterhouseCoopers in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by PricewaterhouseCoopers on the preliminary announcement.
By order of the Board Huanxi Media Group Limited Xiang Shaokun, Steven Executive Director and Chief Executive Officer
Hong Kong, 31 March 2020
As at the date of this announcement, the Board comprises Mr. Dong Ping (Chairman) and Mr. Xiang Shaokun, Steven (Chief Executive Officer) as executive Directors, Mr. Ning Hao and Mr. Xu Zheng as non-executive Directors, and Mr. Wong Tak Chuen, Mr. Li Xiaolong and Mr. Wang Hong as independent non-executive Directors.
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